Forecast

Time spent on administering estate key in determining executor's fee

on August 2, 2014

Should you discuss executors fees with your lawyer?

Two weeks ago, I wrote about how executors are paid in states that have a fee schedule set by law, such as New York and Florida. Other states, such as Connecticut, don't have a set fee schedule, instead relying on a "reasonableness" standard. I promised to follow up with more information.

Statutory fees are typically a percentage of the probate estate. Thus, larger estates pay a larger dollar amount to the executor, irrespective of the work involved.

Under a statutory fee structure, the executors of both estates would be paid the same amount even if the more-complex estate took substantially more time to administer.

In a state that applied a reasonableness standard, the executor of the less-complex estate would be paid less than the executor of the estate that was more time consuming to administer.

In Connecticut, there are rules that spell out factors to determine a reasonable executor's fee. Nine factors come into play, based on a 1923 case called Hayward v. Plant. The factors are: (1) size of the estate; (2) responsibilities involved; (3) character of the work required; (4) special problems and difficulties met in doing the work; (5) results achieved; (6) knowledge, skill and judgment required; (7) manner and promptness in which the matter was handled; (8) time required; and (9) other relevant and material circumstances.

Time spent is an important element.

According to Cooper, recent case law suggests that Connecticut probate judges are sensitive to the time executors spend to administer an estate and view that as an important factor in determining the executor's fee.

There are other factors to consider, which brings up the importance of having a conversation with your lawyer during the estate planning process.

"The crucial question for the testator is: How is the estate administration going to work out when I'm gone," said Cooper.

Who will be involved in the administration? Who will be in charge? How well will the team work together? Who will be responsible for what? What will the costs be? Will there be any overlaps or gaps in expertise or duties? What services will be included in the executor's fee? What attorney's fees will be charged? If an attorney is both the executor and the lawyer for the estate, how will that work?

Who you will want to serve as executor will also make a big difference. For example, a spouse would want to serve for free (normally, there is no advantage to taking an executor's fee since the fee would be taxable as income to the spouse).

If the spouse needed legal help, he or she would retain an attorney for that purpose, presumably on an hourly basis.

On the other hand, if you want your friend to serve as executor at no charge, there is no telling whether he would accept the appointment. A bank serving as executor will not take on an assignment unless compensated, of course. Fee schedules vary and they can be negotiated.

"The testator should be careful because the banks may charge a percentage of the gross estate, meaning charge a commission on probate and non-probate assets," explained De Vellis.

"One way to keep the bank in check is by having the testator appoint the bank along with a family member as co-executors," said De Vellis. "He or she could also permit the family member to remove and replace the bank as co-executor or permit the family member to negotiate the bank's fee." One more point: Which state's laws will apply in determining executor's fees? The testator's domicile will determine where the estate is probated, said attorney Roxanna Hammett of Wolff & Samson, a New York and New Jersey law firm. If you own real estate in more than one state, there will be ancillary probate proceedings in those states as well.

Julie Jason, JD, LLM, award-winning author of "The AARP Retirement Survival Guide: How to Make Smart Financial Decisions in Good Times and Bad, " and "Managing Retirement Wealth: An Expert Guide to Personal Portfolio Management in Good Times and Bad, " is principal of Jackson, Grant Investment Advisers Inc. of Stamford. Please email her with questions at readers@juliejason.com or write to her c/o The Advocate, 9A Riverbend Drive South, Box 4910, Stamford CT 06907. Copyright 2014 Julie Jason.